As the pandemic continues to hit the already struggling retail and hospitality sectors hard, we are seeing the impact across all commercial sectors. There is space that was already vacant pre-COVID and is now even less likely to be let, and space that has become vacant due to closures through downsizing or insolvency, or tenants simply not being able to afford the rent due to lack of cashflow. But how can we make the most of this vacant space? Could it be repurposed? Are 'meanwhile uses' part of the answer? What role can Local Authorities play in seizing this opportunity?
Authorities are unlikely to have the immediate cash to support these sectors. Equally, they will not want boarded up commercial/hospitality space and vacant office buildings in their towns and cities. Many Authorities may also have acquired commercial property outside of their own administrative area over the last few years, with a 14 fold increase in commercial property acquisitions by Authorities between 2017 and 2019 compared with the previous three years.
Authorities are therefore faced with cumulative pressures as a result of a devaluation in their investment assets; reduced business rates receipts (once the current business rates holiday expires); increasing voids and vacancies in their administrative area; increased government and regulatory scrutiny into Authorities' exposure to commercial real estate assets and reduced Community Infrastructure Levy (CIL) receipts to the extent that proposed redevelopment is no longer proceeding due to the economic downturn.
A growing number of intermediaries, investment banks, sponsors and funders are currently seeking opportunities to work with Authorities to help find potential solutions to these pressures.
We have already seen Authorities with an appetite to invest in real estate alongside the private sector in order to bring together relevant expertise to explore the right solution, either to repurpose assets with new tenants, create activity in that space with meanwhile uses, alternative uses or redevelopment, or to create value in other ways.
There are a range of options where Authorities may control land interests that can be released to create marriage value, Authorities may be prepared to provide funding themselves or sponsor grant funding, Authorities may see the benefit of offering their own covenant into an asset structure to create a yield that can trigger much needed investment (eg sale and leaseback, income strip) and given the pressures faced by the entire UK economy, Authorities may have opportunities to work with each other to transfer or land swap assets into their own planning district.
We have seen plenty of excellent examples of public private partnerships that have delivered extremely successful redevelopment/regeneration schemes, creating not just economic benefit but wider social impact value. The opportunity now is to use similar models to take on this new opportunity.
The innovation and expertise of advisers with decades of prior knowledge of working with Authorities is key to unlocking these new opportunities.
Authorities, if not already doing so, should be making available the data held through business rate collection to allow both private sector entities but also potential occupiers of space to find out where the vacant space is and who owns it. Their prior knowledge of complex structures in a redevelopment and regeneration context can be leveraged in agreeing further innovative structures needed to unlock current opportunities. Structures which can include an Authority covenant between existing real estate income streams can be particularly attractive to both sponsors and lenders.
When looking at those structures, we should not dismiss meanwhile uses for more traditional longer term lease, high street chains and covenant based solutions. Many investors and developers have seen the huge benefits of meanwhile uses to trial new businesses, give opportunities to local people in the community and create active frontages in schemes. Often, this space can then become a permanent solution and the real heart of the 'place'.
